Rental Property Expenses Checklist

One of the most common questions I receive from landlords is: What expenses can I claim against my rental income to reduce my tax bill? You might be surprised by some of the items that qualify! To help you navigate this crucial part of property management, we’ve outlined the key allowable expenses in this comprehensive rental property expenses checklist.

Key Allowable Expenses for UK Landlords

Here are some key items you can claim as expenses:

• Letting agent fees
• ICO registration fee (Information Commissioner’s Office registration for landlords storing tenant data)
• Energy Performance Certificates (EPC)
• Specialist landlord insurance (e.g., buildings, contents, or rent guarantee insurance)
• Health and safety certificates (e.g., gas safety and electrical safety certificates)
• Required safety items (smoke alarms, carbon monoxide detectors, fire extinguishers)
• Cleaning, gardening, and other maintenance services
• Professional fees (accountants, property tax advisors, and legal services)
• Certain legal fees (such as evictions and lease renewals)
• Landlord association fees (e.g., NRLA membership)
• Travel expenses for property visits or inspections‍
• Phone calls and stationery used for managing your rental property

Related: Should You Track Allowable Expenses With A Buy To Let Spreadsheet?

Important Considerations: Rental Property Expenses Checklist

Maintenance vs Improvements

A key distinction to understand is the difference between maintenance and improvements:

• Maintenance costs are fully tax-deductible from your rental income in the year they occur. These include repairs and replacements that keep your property in good working order (e.g., replacing a broken boiler or fixing a roof leak).
• Improvements, however, are considered capital expenses are only tax deductible for capital gains tax purposes.

Examples:

• Replacing single glazing with double glazing is now considered a repair, so it’s deductible.
• Building an extension is an improvement and therefore not deductible as an income expense, but it can reduce your capital gains tax liability when you sell the property.

Additionally, pre-letting expenses can be tricky. For example:

• If you knew a property needed rewiring before it could be rented out, that cost would be classified as a capital expense.
• However, if tenants were already living in the property and an electrical fault occurred, fixing it would be considered maintenance and is deductible.

Given the complexity, consulting a property tax specialist can help you avoid costly mistakes and ensure you’re claiming everything you’re entitled to.

Related: How To Increase Cash Flow For Your Residential Buy to Let

Other Allowable Rental Property Expenses Landlords May Incur

Depending on your rental property type and management style, you may also need to account for the following:

1. Income and Capital Gains Tax

While you can claim allowances, it’s important to speak to a tax advisor who can assess your liability based on your total income and gains for the year. Remember that property income is combined with your other income sources, so changes to your rental income may affect your overall tax situation.

2. Utility and Council Tax Bills

If you rent out a House in Multiple Occupation (HMO), you may be responsible for paying utility bills (gas, water, electricity) and council tax. Broadband and other services provided to tenants may also be deductible.

3. Licensing Fees

Certain properties, especially HMOs, require licenses from local authorities. Some councils may also mandate selective licensing for privately rented properties. Be sure to check the licensing requirements in your area and keep up with changes in local regulations.

4. Letting Fees

Any fees incurred when letting a property are deductible, such as advertising costs, tenant referencing fees, and tenancy agreement drafting. If you hire a letting agent, you can claim their fees for both tenant placement and ongoing property management.

5. Leasehold Costs

If your rental property is leasehold, you can deduct ground rent, service charges, and any maintenance-related costs charged by the freeholder.

6. Landlord Education

You may be able to claim expenses for courses that enhance your existing knowledge as a landlord. However, if the course is for learning a new skill unrelated to your current business, it is unlikely to be deductible. Books, magazines, and other professional resources relevant to property management are generally allowable expenses.

7. Mortgage Interest

As of April 2020, mortgage interest is no longer directly tax-deductible. Instead, landlords receive a 20% tax credit on the lower of:

• Total mortgage interest
• Total profits (minus carried forward losses)
• Total income above the personal allowance

Example:
If your monthly rental income is £1,000 and your mortgage interest is £700, your taxable rental income would be £12,000 annually. You would then receive a tax credit of 20% on £8,400 (£700 x 12), which equals £1,680, regardless of whether you’re a 20% or 40% taxpayer.

Related: A Guide to Section 24 Tax Change For Buy-to-Let Investors

Final Words: Rental Property Expenses Checklist

When it comes to property, tax is particularly complicated because you aren’t taxed purely on your income or gains from property – you’re taxed based on all your income and capital gains, which could be from a variety of sources. It’s important to understand that adding an extra buy to let property to your overall income and investment portfolio can change your tax circumstances and may mean you lose any benefits you might have been receiving.

So, to make sure you pay the tax you owe, but no more, we’d recommend you engage a property tax expert who can advise you on the most tax-efficient way to invest in and release profits from property.

Additionally, maintaining accurate records throughout the year is essential. Using rental property accounting software like Landlord Studio, specifically designed for landlords, simplifies expense tracking, ensures compliance, and makes tax preparation far easier.

By staying organised and understanding which expenses you can claim, you’ll not only reduce your tax burden but also maximise the profitability of your rental business.

You Might Also Like

• What Happens If You Don't Declare Your Rental Income (UK)?
• Do I Pay Tax on Rental Income If I Have a Mortgage?
• 7 Costly Mistakes Landlords Make On Their Self-Assessment
• New Landlord Checklist: 15 Steps To Successfully Let Your Property
• Understanding Tax On Rental Income: A Guide For Landlords